Market Commentary May 2021

  • By David Bremner
  • 08 Jun 2021

US inflation on the rise

Expectations of rising inflation became reality in May, as the latest inflation print from the US showed a year-on-year rise of 4.2%. Although the year-on-year comparison is flattered by a low inflation figure twelve months ago, there are still a number of drivers behind this headline figure, including the effects from the Fed’s aggressive fiscal and monetary easing, the narrowing of spare economic capacity, rising input costs (raw materials and energy) and the combination of the unwinding of pent-up consumer demand and supply-side constraints resulting from Covid.

European markets continue to rebound strongly

Strong gains were seen once again across the European markets, as investors continued to look past the current difficulties surrounding the Covid vaccination programmes, and out to the wider global economic recovery. Smaller EU nations were particularly strong, driven by good uplifts in GDP reported in the first quarter. Some smaller markets have returned more than 20% so fa this year. The Euro Stoxx 50 Index hit a new high on 1st June.

Commodities resume strong upward trend

Commodity prices around the world resumed their strong upward trajectory, with gains across the board. Energy commodities (oil, coal etc.) gained another 7.1%, making a total gain of more than 35% so far this year. Meanwhile, agricultural commodities (wheat, soy beans, coffee etc.) gained 5.7% (14.4% YTD), fertilizers rose by 4.4% (34.6% YTD) and metals and minerals gained 9.1% (26.2% YTD). Precious metals also rebounded strongly, with gold erasing all its year-to-date losses.

Emerging markets see inflows from investors

Emerging markets rallied once again in May, as the dollar weakened, rates remained low, and inflation began to become more visible. This is the perfect combination of factors for the emerging market economies, with their massive dollar-denominated debt and manufacturing economies. Investors have been quick to get on board with the emerging market recovery, and during May, one manager, Federated Hermes, announced that its Global Emerging Market Equity Fund would close to new investors from 15th June to maintain its liquidity and “portfolio characteristics”.